Fed’s Lockhart Sees Risk From Cybercrime at Banks

Nov. 27 (Bloomberg) -- Federal Reserve Bank of Atlanta
President Dennis Lockhart said financial regulators need to be
vigilant in identifying risks, including cybercrime at banks and
the underfunding of public pensions.

“At a global level, the span of vigilance needs to be
extremely broad,” Lockhart said today in remarks prepared for a
speech in Berlin. “The events of 2007 and 2008 brought many
surprises,” he said. “Markets that some thought too small to
cause much trouble ultimately posed systemic-scale problems.”

U.S. regulators are grappling with how to identify threats
to financial stability more than four years after the collapse
of Lehman Brothers Holdings Inc. The Dodd-Frank Act tightening
post-crisis supervision created a council of regulators to
monitor sources of instability.

Lockhart didn’t comment on the U.S. economic outlook or
monetary policy in his prepared remarks.

One concern is “the potential for malicious disruptions to
the payments system in the form of broadly targeted cyber-attacks,” Lockhart said at the Levy Economics Institute’s Hyman
P. Minsky Conference on Financial Stability.

“Banks and other participants in the payments system will
need to reevaluate defense strategies” in light of increasing
attacks by “sophisticated, well-organized hacking groups,” he
said.

Funding Shortfalls

U.S. states and municipalities face pension funding
shortfalls of as much as $3 trillion or $4 trillion, when
conservative investment returns are assumed, Lockhart said.
While pensions may not trigger a financial crisis, the health of
state and local governments contributes to economic stability,
he said.

“The situation needs to be monitored,” Lockhart said.
“The public pension funding problem, as it grows, has the
potential to sap the resilience we wish for to withstand a
future spell of financial instability.”

Lockhart, a former Georgetown University professor, has led
the Atlanta Fed since 2007. The Atlanta Fed district includes
Alabama, Florida, Georgia, and portions of Louisiana,
Mississippi, and Tennessee.